To Avoid Raising Taxes, States Try To Rack Up Fees

In the January 1, 2010 National Public Radio (NPR) story "To Avoid Raising Taxes, States Try To Rack Up Fees," Greg Allen reports that U.S. states are using numerous fees and other tax increases to reduce budget shortfalls.

Few ideas are more unpopular during a recession than increasing taxes. So, how can states, counties and municipalities that are struggling financially raise more money?

For many, the answer is fees.

Nearly every state in the country struggled to close budget deficits in 2009, and for many the struggle is not over yet. The National Conference of State Legislatures reports that 36 states already have budget deficits for the fiscal year that began in September, and the gaps are only expected to grow as 2010 progresses.

There have been a lot of cuts, and more are coming. Governors and legislatures have laid off and furloughed state employees, tapped rainy-day funds and cut spending on education and health care.

They have also raised revenue — what most people call taxes.

Few states have struggled more with the budget gap than New York. There, the Legislature's solution was to raise fees — for bottle deposits, tax preparers, nuclear plants, horse racing, hunting and fishing licenses. If there was a fee, the lawmakers raised it. If there wasn't one, they created it.

Dan Sharp owns Honeoye Lake Bait and Tackle Shop in upstate New York. He says the increase in fees for hunting and fishing licenses, combined with the poor economy, is hurting his business at a time when he should be busy: ice-fishing season.

"There's a few guys out on the lake — it just started here a week or so ago — but not the crowds like you'd expect to see," Sharp says.

At least seven other states have also raised hunting and fishing fees.

States Tax Visitors

While politicians have generally tried to avoid using the "T" word, some taxes have proved hard to resist.

Many cities and states are raising taxes on hotel rooms and rental cars. The reason is obvious: They are taxes paid by out-of-towners, not local voters.

Craig Banikowski of the National Business Travel Association calls it taxation without representation. And he says that over the past year, cities and states across the country have been raising rental car and room taxes like never before.

Indianapolis, Boston, San Francisco, Hawaii and Nevada have all added or increased hotel taxes recently, he says.

While raising taxes on constituents is always dicey, the sorry state of their budgets has forced a few states to do so. In Arizona, New Jersey, New York and Colorado, legislatures have suspended some property tax exemptions.

In Colorado, shutting down exemptions for senior citizens is saving the state $100 million annually. Mark Lowderman, the tax assessor in El Paso County, says he has already heard from 30 or 40 seniors who share a common sentiment.

"The general feel is they think they're trying to balance the budget on the backs of the seniors," Lowderman says.

He says he expects the outcry to grow once the property tax bills go out in the next few weeks.

'Sin' Taxes Continue To Rise

If there is such a thing as a popular tax, it would be those on alcohol and tobacco, the so-called "sin" taxes. More than a dozen states raised taxes on alcohol, and 15 states raised tobacco taxes over the past year.

Danny McGoldrick with the Campaign for Tobacco-Free Kids says some states have raised the cigarette tax by a dollar a pack. Even so, he says, there's room for more.

"They go from a low of 7 cents a pack in South Carolina to a high of over $3," McGoldrick says. "So there's a lot of room for tobacco tax increases across the country, and we're hoping that's what's going to happen in the coming year."

State and local governments have been inventive — some might even say devious — in finding ways to increase revenue. One idea that is catching on across the country is automatic surveillance cameras to monitor red lights and speed zones. Typically, the devices are installed and maintained by private companies, which take a cut of revenues from tickets and leave the rest for the municipality.

The state of Georgia has another new idea. It's a "super speeder" law that requires motorists caught driving 85 mph or faster to pay a special $200 state fine on top of the local penalty. It's expected to raise $23 million in the coming year.

And if it's successful, look for it to be coming soon to a state near you.